Striking it Richer:The Evolution of Top Incomes in the United States(Update with 2007 estimates)
August 5, 2009
What’s new for 2007?
From 2006 to 2007, average real income per family grew by a solid 3.7percent. Average real income for the top percentile grew faster (6.8 percentgrowth), further increasing the top percentile income share from 22.8 to 23.5percent (Figure 2). Year 2007 is therefore the second highest year on recordsince 1913 almost equalling 1928, the record year when the top percentileshare reached 23.9 percent (Figure 2). Even within the top percentile, thegains from 2006 to 2007 are extremely concentrated. The top .01% (top14,988 US families, making at least $11.5m in 2007) share increased from5.46% in 2006 to 6.04% in 2007 leaving well behind the 1928 peak of 5.04percent (Figure 3). This shows that 2007 was an incredibly good year for thesuper rich.Year 2007 was actually also quite good for the bottom 99 percent of USfamilies as their average income grew by 2.8 percent. This is the best annualincrease since 1998. Real income growth for the bottom 99 percent had beenvery meagre during the Bush expansion starting in 2002. Even including2007—a good year for ordinary US families-the top percentile captured 65percent of total real income growth per family from 2002 to 2007 (Table 1).
What will happen to income concentration next?
The economic landscape has obviously changed dramatically since 2007which marks the peak of Bush expansion. We know from National Accountstatistics that real incomes per family will fall in 2008 and 2009. Evidencefrom past recessions suggests that, in general, the top percentile incomeshare falls during recessions, as business profits, realized capital gains, andstock option exercises fall faster than average income. Therefore, the mostlikely outcome is that income concentration will fall in 2008 and 2009.Based on the US historical record, falls in income concentration due torecessions are temporary unless drastic policy changes, such as financialregulation or significantly more progressive taxation, are implemented andprevent income concentration from bouncing back. Such policy changes tookplace after the Great Depression during the New Deal and permanentlyreduced income concentration till the 1970s (Figures 2, 3). In contrast, recent
University of California, Department of Economics, 549 Evans Hall #3880, Berkeley, CA94720. This is an updated version of “Striking It Richer: The Evolution of Top Incomes in theUnited States”, Pathways Magazine, Stanford Center for the Study of Poverty and Inequality,Winter 2008, 6-7. Much of the discussion in this note is based on previous work joint withThomas Piketty. All the series described here are available in excel format athttp://elsa.berkeley.edu/~saez/TabFig2007.xls